Vets dismayed by VA payback rules on separation pay

Stephen, a Marine Corps staff sergeant, agreed to leave service a few years ago when the Corps offered him voluntary separation pay in an effort to trim its personnel ranks.

They gave him about $80,000 to leave, and at the time it seemed like a good deal. The money helped him buy a house in Texas and get started with a job as a financial planner.

But now the government wants that money back.

That's because Stephen, who asked to be identified by his first name only, recently went to the Veterans Affairs Department and secured an 80 percent disability rating for a combination of post-traumatic stress, tinnitus and a jaw problem. The VA said he's due an $1,800 monthly stipend.

But the VA won't send him any checks until 2018 because federal law requires veterans to pay back any separation pay received before becoming eligible for disability benefits.

"I wasn't aware of that, and that could have changed my decision altogether" about whether to accept the voluntary separation pay in the first place, Stephen said.

The 30-year-old former platoon sergeant, who deployed twice to Iraq, is now battling bureaucracy at the Pentagon and the VA in an effort to keep the money, which he has already spent.

About 17,000 troops each year have been granted involuntary separation pay in 2014 and 2015, mostly soldiers and Marines, according to Pentagon data. Thousands of such vets likely face recoupment of separation pay, although the VA was unable to say precisely how many veterans currently have benefits blocked for this reason.

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And getting any relief from the Pentagon or the VA will be an uphill battle because the payback requirement is written into federal law.

Specifically, the law affects both voluntary and involuntary separation pay. VA payments are withheld, or offset, until the full amount of separation pay is repaid. In the case of voluntary separation pay, the law allows the military service secretaries to waive the debt, but such waivers are rare.

It's a common subject for complaints, said Claire Lawless, a veterans transition manager with the Washington-based advocacy group Iraq and Afghanistan Veterans of America.

"I've definitely seen a slew of veterans come in in need of financial assistance, usually related to housing or school or something, and they are reaching out because they got the disability rating they were expecting, but then were told that you have to basically wait until you've quote-unquote 'paid off your severance,' " Lawless said.

"Being told that you won't get the money that you thought you were relying on is incredibly disheartening," she went on. "And really debilitating because if you lose your housing, everything starts to fall apart.

"Most of them tell me they had no idea this was going to happen. I don't think it's properly communicated by DoD that when you separate, this will impact your ability to receive benefits down the line."

Some veterans have successfully appealed the debt and had it reduced after proving an urgent financial hardship.

But the bureaucratic process for that is complex and cumbersome and veterans usually need to contact their congressional representative to serve as their advocate, Lawless said.

"The VA , the DoD, these are bureaucracies ... and going in and battling a bureaucracy on your own without a lot of understanding is challenging and its helps to have somebody in your corner," Lawless said.

IAVA supports veterans in that process through its Rapid Response Referral Program.

The law potentially affects thousands of troops who were forced to separate recently by their service's "up-or-out" rules.

For example, Shane Collins, a 13-year Marine who was passed over for promotion to staff sergeant last year, was involuntarily separated in March.

Collins received about $46,000 in involuntary separation pay, more specifically a check for about $33,000 after taxes.

He moved back to Twin Falls, Idaho, and used the money to pay off some bills, buy his wife Amanda a car and set up a home purchased with a VA-backed loan.

Marine veteran Shane Collins and his wife Amanda, who now live in Idaho, must wait until 2017 before he can begin receiving VA disability compensation, as he struggles to repay the involuntary separation payment he received when he was passed over for promotion and forced to leave the Corps in 2013.

Photo Credit: Courtesy of Shane Collins

In May, the VA awarded him a 70-percent disability rating due to post-traumatic stress and some hearing loss.

That should warrant a $1,300 monthly benefit. But the VA told him his payments won't start until mid-2017 because he received the military separation pay.

Collins, now 32, has struggled to find work and worries he might fall behind on his $895 monthly mortgage payment.

He has complained to the VA but was told that receiving separation pay and disability benefits is akin to "double dipping."

Collins strongly disagrees. "It's completely two different areas," he said. "Your involuntary separated, you're given that amount of money because you were denied reenlistment, and it helps you to transition back to civilian live."

Collins said he does not recall anyone from the Marine Corps telling him that the separation pay might need to be paid back.

Lawless said she has heard that refrain before.

"I think the term 'paying back' is very confusing for people because it doesn't seem like something they should have to pay back," she said. "They seem like two very separate things — your disability pay and your separation pay. I think that is what's frustrating because it doesn't seem like it should be coming from the same pot."